Like all good conferences, last month’s CMSF 2008 conference raised some weighty issues, dissected them well, prompted debate and provided no real answers.

The theme, ‘Shaping the Nation for the Future’, is arguably the most important and ambitious of any superannuation conference in memory. What is now needed is open discussion which goes back to the basic questions, such as the role of super funds firstly, and their interaction with markets – both listed and unlisted.

In the important plenary session at the conference entitled ‘To Build a Nation’, Garry Weaven, the chair of Industry Funds Management, wondered out loud whether super funds would be prepared to go as far as he would like in investing in infrastructure and other long-term unlisted investments, particularly those of a sustainable nature. He said there was a chance that funds would baulk at this and stick to the broad style of asset allocation which they have used for the past 20 years, with a heavy reliance on listed markets.

If they did, this was notwithstanding the well-known success of some funds which have had a high exposure to unlisted investments. Warren Chant, principal of Chant West, took issue with this in a session the following day. He said that Weaven was probably referring to funds such as MTAA and Westscheme, which have had more than 40 per cent allocations to alternatives, mostly unlisted, and have enjoyed better returns than most other funds for several years.

Chant’s concern is liquidity, especially in uncertain times, such as now. He described that style of asset allocation as “foundation investing”, which is the style employed, also successfully for many years, by the big US foundations which pioneered the use of alternatives by institutional investors in the 1980s. Super funds used to have similar risk profiles to those of the foundations, that all changed with the introduction of Choice of Fund, he said.

Foundations are given money which can’t be taken away from them, which is about as long term as any strategy can be. But with Choice, it is now possible – although hopefully unlikely – that members could panic in various situations and cause a run on a fund. Chant pointed out that while this had never occurred with super, it had at various stages with certain financial institutions over the past 50 years.

Unlisted assets were not priced as regularly as listed assets, clearly, and it was difficult to work out the risk involved if a fund needed to liquidate assets quickly, which would normally be in a buyer’s market. In such a scenario, ‘fair value’ meant nothing, Chant said.

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